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     Sbk2012 Side Hero Username: Sbk2012 Post Number: 3335 Registered: 01-2014 Posted From: 216.31.211.11 Rating: N/A |
A Year-End Pop For U.S. Housing Construction, But The Trend Remains Sluggish Housing starts in December rose a bit more than expected, the U.S. Census Bureau reports, but the modestly upbeat news was marred by the decline in new building permits in last year's final month. As a result, the overall profile for these leading indicators remains muddled at best. On a year-over-year basis the trend certainly looks sluggish, in contrast with the generally brighter news from other key economic reports in recent months. But perhaps housing has an ace up its sleeve. The renewed decline in mortgage rates lately is expected to deliver stronger comparisons in the months ahead. In fact, that's already happening, or so the weekly updates on mortgage applications show for the year so far. New filings jumped a strong 14.3% last week, according to the Mortgage Bankers Association -- and the news follows the previous week's 49% surge. The renewed demand for mortgages implies that we'll see a stronger run of housing numbers generally in the near term -- but not today. Housing starts rose to a seasonally adjusted annualized rate of 1.089 million units last month, a decent rise from November 1.043 million pace. The gain translates into a year-over-year increase of 5.3%. But as you can see in the chart below, the annual trend in starts has decelerated sharply in recent history, at times dipping into negative territory over the last year. New issued building permits for residential construction looks even weaker, slipping fractionally last month; for the year through December, permits are virtually flat. At best, this chart tells us that housing's recovery has decelerated by a hefty degree. (click to enlarge) The numbers overall look troubling for starts and permits, but there are at least two reasons to wonder if the recent weakness isn't as dark as it appears. First, as noted, falling mortgage rates may act as a stimulant for housing demand. The national average for the 30-year fixed rate has dropped recently to the mid-3% range, which is the lowest in nearly two years. No doubt this is a factor in the sharp increase in new mortgage applications this month. Given the disinflationary winds blowing globally these days, it's likely that mortgage rates will stay low if not drop further in the coming weeks. The fact that U.S. economic growth has picked up lately is a key factor too. The improvement in job growth in particular suggests that any weakness in the housing market is a temporary affair rather than a warning signal for the business cycle. It doesn't hurt that energy costs have fallen dramatically over the last six months, providing support for household balance sheets. Some analysts note that despite today's mixed bag of housing numbers, the single-family unit component is performing better than the general trend, which signals that housing's outlook is improving. Indeed, new construction for single-family houses jumped 7.2% last month vs. November, substantially faster than the 4.4% monthly gains for starts overall. More importantly, single-family units are ahead by 7.9% on a year-over-year basis through December vs. a 5.3% rise for new residential construction in total. Is the faster increase in single-family units a reason to remain optimistic on housing? Yes, according to a senior economist at Societe Generale in New York. "The strength is where you'd like to see it, in single-family housing," Brian Jones tells Bloomberg. "It bodes well for residential real estate. It's another thing going in the right direction for the economy." As usual, however, there's a joker in the deck and it's lurking in the global economy -- Europe's weakness and China's deceleration in particular. So far, the fallout from abroad has had minimal impact on the U.S. economy. But it's folly to think that the U.S. can remain completely walled off from any troubles abroad. On the short list of risk factors to monitor: the stronger dollar, which is a byproduct of renewed concerns that the rest of the world is facing stronger macro headwinds. As usual, the dollar is perceived as a safe haven. But a rising greenback acts as de facto monetary tightening for the U.S. So far, that tightening hasn't caused much pain, in part because of the offsetting stimulus via falling energy prices. But if there's a canary in this coalmine, you'll hear the chirping in the halls of the Federal Reserve. At the moment, it's still widely assumed that the Fed will start raising interest rates later this year, perhaps as early as June. The motivating factor, of course, is the recent improvement in the U.S. macro trend. But if the central bank delays the timing of the first rate hike, as some analysts now predict, that'll be a sign that the outlook for the economy isn't as strong as assumed. "You have some cracks appearing in the official line that lower oil prices are good for the U.S. economy and that the U.S. can grow even if the global economy is weakening," advises Thomas Costerg, an economist at Standard Chartered Bank. "There are headwinds." There have been all along, of course. The question is whether the marginal change in the headwinds is strengthening for the U.S. trend? It's still reasonable to answer in the negative. But as today's housing numbers remind, confidence about the future can still look a bit wobbly depending on the data set under scrutiny. | ||
| Sbk2012 Side Hero Username: Sbk2012 Post Number: 3334 Registered: 01-2014 Posted From: 216.31.211.11 Rating: N/A |
Understanding The Implications Of Lower Oil Prices Adam Aloisi - Seeking Alpha - 17 mins ago Article Comments (0) For the average American, oil under $50 a barrel represents a tax cut. For those with lengthy commutes or typically rack up high miles on the open road, it has become considerably less painful to fill up at the gas station. This represents more disposable income that can be distributed in other places, saved in the bank, or invested in the securities markets. (click to enlarge) That's the good news. The bad news for energy investors and employees of energy-related enterprises is that the $70 drop in oil over the past six months will mean less profits for big oil and potentially losses for niche or less-well-capitalized entities. It will also have a domino effect on those that do business with oil companies. Investors long oil are losing a lot of money and some of those affiliated with the oil space are likely to lose their jobs. If you look at the chart above, you'll see that basically for the past four years, oil has traded in quite a narrow range, generally at a price between $100-$110 a barrel. Companies have geared their businesses, operations, and headcount towards this stable, robust pricing. This sudden, unpredicted cratering has caught most off guard, which will mean a re-tooling process for even the most fiscally sound of companies. The impact is widespread and will affect the business of upstream, midstream, and downstream oil entities. The following is a primer on what those terms mean: Upstream: Companies that deal with the exploration and extraction of raw energy assets from the earth. Drillers, submersible platform operators, for example. Midstream: Companies that move and/or store raw energy assets. Pipeline builders and operators - many of which operate as master limited partnerships (MLPs) would be prime examples. Downstream: Companies that refine raw petroleum into useable end-product or deliver/retail end product to consumers. An apparent global glut of crude oil and simultaneous speculator abandonment of the asset appears majorly responsible for the drop in price. OPEC - a 12 member consortium of petroleum exporting nations has exacerbated the situation by repeatedly announcing that it would not curb its oil output. While few remember the brief instance, crude traded in the upper teens per barrel for a brief period in the late 90s. The profit crunch back then led to a slew of mega-mergers between some of today's biggest domestic oil titans. Exxon, then a stand alone company, merged with Mobil; Chevron and Texaco also merged, so did Conoco and Phillips a few years later. Today, the speculation is hot and heavy as to how low the price of oil may go. There are a lot of factors that will determine whether we are near a bottom or not. Future supply from OPEC and elsewhere, end demand from around the globe, activities of energy speculators, as well as regional geopolitical situations will all factor into the mix. We are conceivably only one unforeseen event or message from OPEC away from seeing the bottom. Yet with continued resonance regarding oversupply, there seems little to protect against the seemingly falling knife. The ferocity of the decline in price is what has created the shell shock in energy markets. If the decline occurred over a matter of years, not months, it may have been easier for companies to digest. Just like the "taper tantrum" move in interest rates back in 2013, it is very difficult for enterprises to adjust to rapid-fire, unexpected events - with severe near-term financial impact as a result. At the end of the day, while the positive benefit to consumers and negative effect on the greater energy space may make this a virtual wash to the macroeconomy, at least for the near-term it is creating a lot of havoc in financial markets. http://www.barchart.com/headlines/story/5131202/understandin g-the-implications-of-lower-oil-prices |
